Socially responsible CDO hits a snag

ABN AMRO's so-called socially responsible CDO, which was set to hit the market June 10, has yet to launch. The CDO is reported to have been held up by snags occurring after the corporate credit downgrades of Ford Motor Co. and General Motors Corp.

While the deal did not reference the corporate names of either Ford or GM, the CDO referenced more than a dozen corporate names within the automotive sector, such as DaimlerChrysler AG, and Volkswagen AG, according to its term sheet. A spokeswoman for ABN AMRO did not return a request for comment.

CDS spreads for Ford and GM widened as far out as 640 and 725 basis points, respectively, following the May 5 downgrades, and have now come back in to around 410 and 425 basis points, respectively.

The Rembrandt Australia Trust 2005-1 (Responsibility, Ethics, Environment, First [REEF] series 1) senior secured tranche of double-A minus rated, five-year floating rate notes offered to investors were linked to the performance of a A$1.1 billion ($830.1 million) portfolio of investment grade CDOs containing companies considered "at the forefront of social responsibility," according to ABN AMRO. The portfolio had a default probability equivalent to at least triple-B minus

The deal had a minimum issue size of A$20 million ($15.1 million). The notes, maturing June 20, 2010, were set to be offered at 110 basis points over three-month BBSW. Perpetual Trustee Co. Limited was serving as trustee, and ABN AMRO Bank N.V. Australian Branch and ABN AMRO Morgans Limited as joint lead managers on the deal.

The socially responsible theme of the deal was intended to draw retail and institutional investors, such as government and charity organizations bound by certain investment requirements.

The 300 corporations referenced met corporate social responsibility criteria set by RepuTex Australia Pacific Pty Ltd, a private research and rating agency specializing in corporate responsibility and reputation. The agency reviewed some 500 corporations worldwide before thinning the list down to 300 acceptable entities rated by the firm as single-A minus or higher for their commitment to corporate governance, workplace practices, social impact, and environmental impact, ABN AMRO stated.